Wednesday, Jun 12, 2013

By Summer Said

DUBAI--A donation of liquefied natural gas from the wealthy Persian Gulf emirate of Qatar to Egypt will not be shipped directly to the cash-strapped North African state, but will be delivered to international companies that have been supplying natural gas to help bridge Egypt's energy shortages, industry officials said Wednesday.

The five free cargoes of gas, promised by Qatar this week, will not be used, as was claimed Monday, to help Egypt cope with peaking energy demand during the hottest summer months between July and September, but will cover gas supplies already provided for May and June, the officials said.

Egypt, which has been struggling to cope with energy shortages, has already secured an extra 300 million cubic feet of natural gas a day from the two companies operating at the Egyptian Idku export terminal--BG Group PLC (BG.LN) and Malaysia's Petroliam Nasional Bhd, or Petronas--from the beginning of May until the end of June, said an official familiar with the situation.

The Qatar-donated gas--equivalent to 16 billion cubic feet--will go to BG Group and Petronas to compensate for the extra supplies they provided to Egypt that amounted to around 18 billion cubic feet of gas, and which would have been exported. The two companies will use the Qatar cargoes to supply their international customers, the officials said.

Oil and gas producers in Egypt have curbed local production due to political unrest, but demand for energy has continued to grow, resulting in rolling blackouts throughout the country that have deepened public discontent.

In response the Egyptian government last year started looking for deals to buy LNG and issued a tender to build an import terminal that would start to operate in May this year. However, those plans were cancelled, "due to political and technical issues causing confusion to everyone," said an Egyptian official, who asked not to be named.

Tarek el-Barkatawy, the head of state-owned Egyptian General Petroleum Corp. confirmed that Egypt "does not have any facility at the moment to import LNG," but declined to say whether it is working on building one for future purchases.

Egypt already has two LNG export terminals, but would need to contract a floating LNG storage and regasification vessel, before it could import the fuel and distribute it through the Egyptian national natural gas grid, officials said.

Such a facility, which would convert LNG into regular natural gas without the need for a permanent and costly import terminal, could be up and running by October, said one official, without giving any details. If this import facility can be deployed in time, Egypt could become a net importer of natural gas this year, the official said.

Egypt has faced a natural gas and diesel shortage since last year, which has pushed up food costs, seen long lines at filling stations and electricity blackouts. The energy-supply problems have deepened popular discontent with Egypt's ruling Islamist government and exacerbated broader economic difficulties there.

Qatar originally agreed in April with the Egyptian government to supply between 18 and 24 LNG cargoes to the overseas customers of BG Group and Petronas, which would in turn supply an extra 500 million cubic feet a day of domestically produced natural gas to Egypt's government.

The first cargo from the April gas-swap deal was scheduled to be shipped in May, but a disagreement over the price Egypt would pay for the gas held up the agreement, people familiar with the talks said.

Egypt is also struggling to complete oil-supply agreements with Iraq and Libya aimed at easing diesel shortages. The country has been unable to provide acceptable bank guarantees that would facilitate the flow of oil, people familiar with the talks said last week.

Egypt's government is short of funds and has been negotiating with the International Monetary Fund for a $4.8 billion loan, which analysts and investors say is critical for the country.

However, IMF officials left Cairo in April without agreeing on the terms of the loan.

Write to Summer Said at summer.said@dowjones.com

(END) Dow Jones Newswires

12-06-13 1505GMT